Energy subsidies hit gas consumption

Oct 30, 2013, updated May 12, 2025

Gas distributor Envestra has maintained its profit guidance for the current financial year at $140 million, up 30 per cent on the previous year.

At the South Australian company’s annual general meeting, Envestra’s chairman John Allpass told shareholders the company’s market value had increased in recent years leaving it ranked just outside the top 100 companies on the ASX.

His chief executive Ian Little reflected on the last decade, and revealed a continuing fall in gas consumption by South Australian consumers as governments subsidise solar and wind power alternatives.

“Natural gas is a fuel of choice; it is not like electricity, at least in most instances, which is an ‘essential’ service,” Little said.

‘It is sobering to reflect over the course of a decade that the volume of gas being transported through our considerably expanded networks is 2 per cent less than it was in 2003.

“To some extent, this is good, it reflects the efforts on the part of Government and others to improve energy efficiency and waste consciousness on the part of consumers.

“It also reflects a variety of technical improvements to gas appliances, particularly water and space heaters.

“In addition, it is a reminder of the competitive position of natural gas in the market, and the fact that alternative green energy applications, such as solar and wind, are heavily subsidised by governments at the expense of natural gas applications.

“As an example, per household gas consumption in South Australia has fallen from around 23 GJ in 2003, to 19 GJ in the 2012-13 year, a decline of 2 per cent per annum.

“This gradual decline in household usage is not expected to continue in the medium-term as potential energy saving measures have, to a large extent, been exhausted.”

Chairman John Allpass said the past year had delivered “a credit rating upgrade, acceptable regulatory outcomes, progressing a number of significant capital projects, a record profit, and more recently an increase in dividends”.

The company expects to spend more than $1.3 billion in new and replacement projects over the next five years.

“A record amount of $217 million (up $41 million on the prior year) was invested in capital projects in 2012-13 on new gas mains and connections, replacing old mains and enhancing the capacity of the networks,” the chairman said.

“A large portion of our capex program focusses on replacing the remaining sections of cast iron and unprotected steel mains in the networks with polyethylene pipes.

“A record 417 kilometres of mains were replaced during the year at a cost of around $102 million, up 86 kilometres, or 26 per cent, on 2011-12. We expect to replace 460 kilometres of old mains this year.”

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Envestra’s chairman said the company also had a major focus on new works to build its customer base.

“We also commenced work on major projects which will make natural gas available in new areas,” Allpass said.

“These include Buckland Park (north-west of Adelaide) and Tanunda in South Australia, Merrifield in Victoria (north-west of Melbourne) and Ripley Valley in Queensland (south-west of Brisbane).

“It is expected that over 50,000 new consumers will be connected to natural gas over the life of these projects.”

The company rolled out a major advertising program to boost its customer numbers.

“Around $9 million was invested in TV and radio advertising, appliance subsidy offers and sponsorship initiatives – a key factor in over 23,000 new consumers being connected to Envestra’s networks.”

Envestra had been the subject of a recent merger proposal from pipeline group APA; the chairman today updated shareholders on progress.

“On 16 July 2013, Envestra’s largest shareholder, APA Group, submitted an ‘indicative, conditional, non-binding, all-scrip merger proposal’ to the company.

“An Independent Board Committee was formed to consider the merits of the proposal. The committee engaged a number of independent external advisors to assist in the assessment.

“The committee concluded that the proposal significantly undervalued Envestra’s shares in the context of a control transaction and was not in the best interests of non-APA Envestra shareholders.

“Accordingly, the Independent Board Committee decided not to proceed with the proposal.

“While there has been some dialogue with APA’s representatives no further proposal has emerged.”

 

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